Dollar slips lower ahead of Fed meeting

The dollar was weaker against the euro and the yen on Tuesday as ongoing uncertainty over when the Federal Reserve will start to taper its asset purchase program weighed.

During European morning trade,EUR/USD rose to session highs of 1.3782 and was last up 0.05% to 1.3768.

Demand for the euro continued to be underpinned after data on Monday showed that the euro area’s composite purchasing managers’ index rose to a three month high in November, indicating that European Central Bank policymakers will not need to step up stimulus measures. 

USD/JPY hit session lows of 102.88, down from Friday’s five year highs of 103.91, and was last down 0.13% to 102.87.

Sentiment on the dollar remained fragile ahead of the outcome of the Fed’s two-day policy meeting on Wednesday, with some expecting the bank to announce a small reduction in the pace of its USD85 billion-a-month asset purchase program.

Markets were turning their attention to U.S. inflation data due out later in the session amid concerns that the subdued inflation outlook could prompt the Fed to keep its stimulus program in place for longer.

The pound was higher against the dollar, with GBP/USD rising 0.15% to 1.6323 ahead of U.K. data on consumer prices.

The dollar was trading close to two year lows against the Swiss franc, with USD/CHF dipping 0.04% to 0.8868, holding just above the lows of 0.8839 struck last Wednesday.

The greenback was steady near three month highs against the Australian dollar, with AUD/USD edging down 0.04% to 0.8944.

Earlier Tuesday, the minutes of the Reserve Bank of Australia’s December meeting left the door open for further rate cuts, but said it was important to first see the effects of earlier cuts.

The U.S. dollar was lower against its New Zealand and Canadian counterparts, with NZD/USD up 0.22% to 0.8275 and USD/CAD down 0.18% to 1.0576.

The U.S. dollar index, which tracks the performance of the greenback versus a basket of six other major currencies, edged down 0.04% to 80.21. 

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EUR/GBP: Bullish, Follows Through Higher

EUR/GBP: The risk of further upside is now seen with a follow through higher on its past week corrective recovery underway. This development has exposed the 0.8463 level. It must break and hold above that level to create scope for further offensive.

However, if this fails to occur expect a return to the 0.8350 level to happen. Further down, support lies at the 0.8251 level with a cut through here aiming at the 0.8200 level. A clearance of here will turn attention to the 0.8150 level.

Conversely, a follow through higher on the back of its gain could see it targeting the 0.8463 level and then the 0.8500 level. A violation will aim at the 0.8584 level.

Further out, a cut through here will resume its upside towards the 0.8650 level. All in all, the cross remains biased to the upside on correction.

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U.S. oil futures edge lower ahead of supply data, Fed meeting

U.S. oil futures edged lower on Tuesday, as market players awaited key U.S. weekly supply data to gauge the strength of oil demand from the world’s largest consumer.

Investors also awaited the outcome of the Federal Reserve's two-day policy meeting on Wednesday.

On the New York Mercantile Exchange, West Texas Intermediate crude for delivery in February traded at USD97.45 a barrel during European morning trade, down 0.35%. New York-traded oil futures held in a range between USD97.33 a barrel and USD97.72 a barrel.

Nymex oil futures were likely to find support at USD96.27 a barrel, the low from December 13 and resistance at USD98.17 a barrel, the high from December 12.

The February contract ended up 0.87% to settle at USD97.77 a barrel on Monday after upbeat manufacturing data out of the euro zone and the U.S. boosted optimism over the global economy.

The American Petroleum Institute will release its inventories report later in the day, while Wednesday’s government report could show crude stockpiles fell by 3.5 million barrels in the week ended December 13.

Traders have been concerned over rising U.S. inventories and increased production levels in recent weeks.

Investors remained cautious ahead of the outcome of the Fed’s two-day policy meeting on Wednesday, with some expecting the central bank to announce a small reduction in the pace of its USD85 billion-a-month asset purchase program.

Markets were turning their attention to U.S. inflation data due out later in the session amid concerns that the subdued inflation outlook could prompt the Fed to keep its stimulus program in place for longer.

The Fed’s stimulus program is viewed by many investors as a key driver in boosting the price of commodities as it tends to depress the value of the dollar.

Elsewhere, on the ICE Futures Exchange in London, Brent oil futures for February delivery shed 0.25% to trade at USD109.16 a barrel, while the spread between the Brent and U.S. crude contracts stood at USD11.71 a barrel.

London-traded Brent prices rallied 1.01% on Monday to settle at USD109.41 a barrel amid renewed concerns over a disruption to supplies Libya
.

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European stocks decline amid Fed jitters; Dax down 0.40%

European stocks decline on Tuesday, as markets were jittery ahead of the Federal Reserve's highly anticipated policy meeting, due to begin later in the day. 

During European morning trade, the EURO STOXX 50 retreated 0.60%, France’s CAC 40 tumbled 0.96%, while Germany’s DAX 30 dropped 0.40%. 

Investors remained cautious ahead of the outcome of the Fed’s two-day policy meeting on Wednesday, with some expecting the bank to announce a small reduction in the pace of its USD85 billion-a-month asset purchase program.

Markets were also eyeing U.S. inflation data due out later in the session amid concerns that the subdued inflation outlook could prompt the Fed to keep its stimulus program in place for longer. 

European equities had found support on Monday after data showed that the euro area’s composite purchasing managers’ index rose to a three month high in November, indicating that European Central Bank policymakers will not need to step up stimulus measures. 

Manufacturing activity in Germany rose to a 30 month high but the contraction in France deepened in November, sparking concerns that the country could fall back into a recession. 

Financial stocks were broadly lower, as French lenders BNP Paribas and Societe Generale declined 0.87% and 0.70%, while Germany's Deutsche Bank slid 0.42%. 

Among peripheral lenders, Spanish banks BBVA and Banco Santander both slipped 0.20%, while Italy's Unicredit and Intesa Sanpaolo retreated 0.66% and 0.67% respectively. 

Elsewhere, Rexel tumbled 1.82% as Ray Investment SARL said it will sell a 7% stake in the electrical-equipment distributor. 

On the upside, Zurich Insurance Group rallied 1.64% after Swiss Re Ltd.’s Chief Financial Officer George Quinn quit to join Switzerland’s biggest insurer. 

In London, commodity-heavy FTSE 100 lost 0.54%, weighed by losses in the energy sector. 

Shares in oil and gas major BP plummeted 1.44%, while rivals Anglo American and Petrofac retreated 1.89% and 1.92%. 

Mining companies were also on the downside, as Glencore Xstrata shed 0.44% and Rio Tinto declined 0.54%, while Vedanta Resources and Polymetal dropped 0.75% and 0.87% respectively. 

In the financial sector, the Royal Bank of Scotland inched down 0.06% and Lloyds Banking shed 0.30%, while Barclays retreated 0.74% and HSBC Holdings tumbled 0.96%. 

In the U.S., equity markets pointed to a moderately lower open. The Dow Jones Industrial Average futures pointed to a 0.06% dip, S&P 500 futures signaled a 0.12% fall, while the Nasdaq 100 futures indicated a 0.13% loss. 

Later in the day, the ZEW Institute was to release its closely watched report on German economic sentiment. The euro zone was also to publish data on consumer inflation.
 

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Silver futures decline with Fed in focus

Silver prices were lower on Monday, as investors awaited a Federal Reserve meeting starting tomorrow to gauge the timing of stimulus cuts.

On the Comex division of the New York Mercantile Exchange, silver futures for March delivery traded at USD19.47 a troy ounce during European morning trade, down 0.65%. Comex silver prices traded in a range between USD19.44 a troy ounce and USD19.67.

Futures were likely to find support at USD19.28 a troy ounce, the low from December 13 and resistance at USD19.73, the high from December 13.

The March contract ended up 0.78% on Friday to settle at USD19.60 a troy ounce.

Silver traders were turning their attention to the outcome of the Fed’s upcoming policy meeting on Wednesday, with some expecting the central bank to announce a small reduction in the pace of its USD85 billion-a-month asset purchase program.

Recent signs of improvement in the labor market and last week’s agreement on a two-year U.S. budget deal were seen as removing obstacles to the winding back of monetary stimulus.

Silver is down approximately 35% this year, as solid U.S. economic data underlined expectations the Fed will begin curbing stimulus.

Elsewhere on the Comex, gold for February delivery shed 0.6% to trade at USD1,227.40 a troy ounce, while copper for March delivery inched up 0.25% to trade at USD3.320 a pound.

Copper prices found support after data showed that manufacturing activity in the euro zone expanded at the fastest pace since May 2011 in December.

Market research group Markit said that its preliminary manufacturing purchasing managers’ index inched up to a seasonally adjusted 52.7 this month from a final reading of 51.6 in November. Analysts had expected the index to inch up to 51.9 this month.  

The upbeat data came after a report showed that manufacturing activity in Germany improved to a 30-month high this month.

Copper traders shrugged off disappointing manufacturing data out of top consumer China.

Data on Monday showed that the preliminary reading of China’s HSBC manufacturing index ticked down to a three month low of 50.5 in December from a final reading of 50.8 in November. Economists had expected the index to rise to 51.0.

The Asian nation is the world’s largest copper consumer, accounting for almost 40% of world consumption last year.

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French PMIs disappoint – EUR/USD slides

Markit reported its preliminary purchasing managers’ indices for France, Europe’s second largest economy. Manufacturing PMI fell 47.1 points, while in the services sector, the indicator fell to 47.4. Manufacturing PMI was expected to advance from 48.4 to 49.1 points. Services PMI carried expectations of a move from 48 to 48.9 points. The 50 point mark separates contraction from growth.

EUR/USD traded just above 1.3750 before the publication, after steady trading in the Asian session. The pair made a quick drop to 1.3735 before bouncing back.

The release for France will be followed by the German numbers and later by the all-European numbers. There are market moving German surveys this week, but the Fed will probably steal the show with the decision on whether or not to taper.

Support is at 1.3710 and resistance awaits at 1.38.

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Forex - EUR/USD hits session highs after euro zone PMI data

The euro rose to session highs against the dollar on Monday following the release of encouraging data on euro zone private sector activity, but gains were held in check ahead of this week’s Federal Reserve policy meeting.

EUR/USD hit highs of 1.3763, up from session lows of 1.3726 and was last up 0.16% to 1.3762.

The pair was likely to find support at 1.3708, Friday’s low and resistance at 1.3802, the high of December 12.

The euro found support after data showed that the euro zone’s composite output index rose to a three month high of 52.1 in December, from 51.7 in November, indicating that the recovery in the region is on track.

The euro zone’s manufacturing purchasing managers’ index rose to a 31 month high of 52.7 in December, from a final reading of 51.6 in November and above expectations for a reading of 51.9. 

However, the currency bloc’s services PMI ticked down to 51.0 from 51.2 in November, falling short of expectations for an uptick to 51.5.

Germany’s manufacturing PMI rose to a 30-month high of 54.2 in December, up from 52.7 in November and above expectations for a reading of 53.0.

The country’s services PMI ticked down to 54.0 this month from 55.7 in November, compared to expectations for a decline to 55.5.

A separate report showed that France’s manufacturing PMI fell to a seven month low of 47.1 from 48.4 in November, while the services PMI dropped to a six month low of 47.4 from 48.0 last month.

Investors remained cautious ahead of the outcome of the Fed’s upcoming policy meeting on Wednesday, with some expecting the bank to announce a small reduction in the pace of its USD85 billion-a-month asset purchase program.

Recent signs of improvement in the labor market and last week’s agreement on a two-year U.S. budget deal were seen as removing obstacles to the winding back of monetary stimulus. 

But with the inflation outlook remaining subdued the Fed may prefer to hold off on tapering stimulus measures until it sees more indications that the recovery is self-sustaining.

Elsewhere, the euro trimmed losses against the yen, with EUR/JPY last down just 0.02% to 141.80, up from session lows of 141.23.

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Euro zone manufacturing PMI rises to 31-month high of 52.7 in December

Manufacturing activity in the euro zone expanded at the fastest pace since May 2011 in December, preliminary data showed on Monday.

In a report, market research group Markit said that its preliminary manufacturing purchasing managers’ index inched up to a seasonally adjusted 52.7 this month from a final reading of 51.6 in November. Analysts had expected the index to inch up to 51.9 this month.  

On the index, a reading above 50.0 indicates industry expansion, below indicates contraction.

The report also showed that service sector activity in the euro zone declined to a seasonally adjusted 51.0 in December from 51.2 in November, disappointing expectations for an increase to 51.5. 

Commenting on the report, Chris Williamson, Chief Economist at Markit said that “The PMI is signaling a mere 0.2% expansion of GDP in the fourth quarter, suggesting the recovery remains both weak and fragile.”

He added that, “There’s little here to suggest that euro area policymakers need to increase their stimulus, but on the other hand the sluggish nature of the upturn adds to the sense that policy will remain ultra-accommodative for quite some time.”

Following the release of the data, the euro held on to modest gains against the U.S. dollar, with EUR/USD inching up 0.11% to trade at 1.3757.

Meanwhile, European stock markets were mildly higher. The EURO STOXX 50 advanced 0.5%, France’s CAC 40 added 0.3%, London’s FTSE 100 inched up 0.15%, while Germany's DAX tacked on 0.4%.

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GBP/USD Outlook Dec. 16-20

GBP/USD posted modest gains on the week, closing at 1.6375. It’s a very busy week, with 17 releases on the schedule. Here is an outlook for the main events moving the pound, and an updated technical analysis for GBP/USD.

British releases were uneventful last week. In the US, Unemployment Claims jumped but retail sales improved in November.

Updates:

GBP/USD graph with support and resistance lines on it. Click to enlarge:  

1. Rightmove HPI: Monday, 00:01. This house inflation indicator is an important gauge of activity in the housing market. The index posted a decline of 2.4% last month, its third decline in four releases. The markets are hoping for a better result for November.
2. CPI: Tuesday, 9:30. This is the primary inflation indicator and often moves GBP/USD. The index dropped to 2.2% in October, sh0rt of the estimate of 2.5%. The estimate for November also stands at 2.2%.
3. PPI Input: Tuesday, 9:30. This inflation indicator has looked sluggish, posting three straight declines. Little change is expected for this month’s reading, with an estimate of -0.5%.
4. RPI: Tuesday, 9:30. RPI dropped to 2.6% last month, its lowest level in over a year. The markets are expecting a similar reading for November, with an estimate of 2.7%.
5. CBI Industrial Order Expectations: Tuesday, 11:00. This important manufacturing indicator shot up to 11 points last month, crushing the estimate of 0 points. Another strong reading is expected ,with the estimate standing at 12 points.
6. BOE Governor Mark Carney Speaks: Tuesday, 15:30. Carney will testify before the  House of Lords Economic Affairs Committee in London. His remarks will  be closely watched and could cause some volatility in GBP/USD.
7. Claimant Count Change: Wednesday, 9:30. This is one of the most important economic indicators. It has been posting strong declines in recent releases, as the UK employment picture improves. The estimate for the upcoming release stands at -35.2K. The Unemployment Rate is expected to remain unchanged at 7.6%.
8. MPC Asset Purchase Facility Votes: Wednesday, 9:30. This indicator looks at the breakdown of the recent BOE decision on QE, which was to maintain levels at 325 billion pounds. The breakdown for the vote is expected to have been 9-0.
9. MPC Official Bank Rate Votes: Wednesday, 9:30. At the last BOE policy meeting, the Bank kept the benchmark interest rate unchanged at 0.50%. The breakdown for the vote is expected to have been 9-0.
10. Average Earnings Index: Wednesday, 9:30. This indicator is an important gauge of consumer inflation. The indicator has posted straight releases with a 0.7% gain, and the estimate for the upcoming release stands at 0.8%.
11. CBI Realized Sales: Wednesday, 11:00. CBI Realized Sales has looked weak in the past couple of months. The last release came in at just 1 point, well off the estimate of 12. points. The markets are expecting a strong improvement in the upcoming release, with an estimate of 9 points.
12. Retail Sales: Thursday, 9:30. Retail Sales is the primary gauge of consumer spending. The key indicator disappointed last month, declining by 0.7%. This was well short of the forecast of 0.0%. The estimate for the November release stands at 0.3%.
13. BOE Quarterly Bulletin: Friday, 00:01. This release includes commentary on the markets and on monetary p0licy. As a minor event, it is unlikely to have a major impact on GBP/USD.
14. GfK Consumer Confidence: Friday, 00:05. Although the British economy is picking up steam, consumer confidence is lagging behind. The previous release came in at a dismal -12 points and little change is expected in the upcoming release.
15. Current Account: Friday, 9:30. The UK continues to post current account deficits, and last month’s figure of -13.0 billion pounds was much higher than the estimate of -11.2 pounds. The estimate for the November reading stands at -13.8 billion.
16. Final GDP: Friday, 9:30. GDP readings are always eagerly awaited by the markets. This indicator is released each quarter, which magnifies the impact of each release. The indicator improved to 0.7% in Q2, matching the estimate. The markets are  expecting another strong release in Q3, with an estimate of 0.8%.
17. Public Sector Net Borrowing: Friday, 9:30. The public sector deficit has been shrinking and dropped to 6.4 billion pounds last month. However, this was well above the estimate of 4.8 billion. A similar reading is expected for November.

* All times are GMT

GBP/USD Technical Analysis

GBP/USD opened the week at 1.6327. The pair climbed to a high of 1.6465, but then reversed directions and dropped to a low of 1.6339. The pair closed at 1.6375, as support at 1.6343 (discussed last week) remained intact.

Live chart of GBP/USD:

Technical lines from top to bottom

We begin with resistance at 1.6990, which is protecting the key 1.70 level. This line has remained intact since October 2008.

Next is resistance at 1.6705, which has held firm since May 2011. This is followed by the round number of 1.6600.

1.6475 has held firm since August 2011. This is followed by 1.6343, which was breached for a third week and begins the week in a support role. It is a weak line and could be tested early in the week.

1.6247 continues to provide the pair with support. This was a key resistance line in October and November 2012.

1.6125 is next. This line has strengthened as GBP/USD trades at higher levels and has held steady since late November.

The round number of 1.60, a key psychological barrier, is providing strong support. Next is 1.5893 which saw action in November.

1.5752 is the final support line for now. It was breached in mid-September by the surging pound but has provided solid support since then.

I am neutral on GBP/USD.

The pound has looked strong and continues to hold its own against the US dollar. The British economy continues to pick up steam, which is good news for the pound. For its part, the dollar could get a boost asspeculation swirls over a possible QE taper this week.

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EUR/USD Forecast December 16-20

EUR/USD continued rising, but was unable to reach the previous highs. Is it about to change direction? Manufacturing and services PMIs, President Draghi’s speech, German ZEW Economic Sentiment and the Ifo Business Climate indicators. Here is an outlook for the market moving events and an updated technical analysis for EUR/USD.

Most recent indicators from the old continent haven’t been encouraging: industrial production unexpectedly fell in Germany, France, and in all the euro-zone. Inflation numbers from both core countries have been weak. In the US, politicians reached a budget deal that averts another government shutdown. Together with a positive employment figure that the Fed watches, chances for QE tapering seem even higher in December. With a lower high in place, can the pair reverse the gains? Let’s start:

Updates:

EUR/USD daily chart with support and resistance lines on it. Click to enlarge:

1. Manufacturing and Services PMIs: Monday. Recovery in the euro zone private sector weakened unexpectedly in November despite robust growth in Germany, due to a sharp fall in French business activity. Markit’s Eurozone Services Purchasing Managers’ Index, fell to 50.9 in November from 51.6 in the previous month, missing analysts’ predictions of a 51.9 reading. Meanwhile the manufacturing sector edged up marginally to 51.5 from 51.3 in the previous month. The lukewarm figures exemplify the fragile nature of the Eurozone’s recovery. French business activity shrank from 50.9 to 48.8 and the Manufacturing service further contracted to 47.8 from 49.1in October. German economy is the only force keeping the Eurozone from recession demonstrating robust growth with the manufacturing sector climbing to 52.5 from 51.7 and the services sector reaching 54.5 following 52.9 in the previous month. Nevertheless, output outside France and Germany increased for the fourth consecutive month, indicating the euro-area is on a growth trend; however the scale of improvement raises concerns. French manufacturing sector is expected to reach 49.1 while the services sector is predicted to climb to 48.9. German Manufacturing is expected to expand to 53.1 and the service sector is expected to reach 55.2. The Eurozone Manufacturing is expected to climb to 51.9 and the services sector is expected to reach 51.5.
2. Trade Balance: Monday, 10:00. The euro zone’s trade surplus increased in line with market forecast, reaching 14.3 billion euros in September from 12.3 billion in the previous month. Imports remained flat and exports increased. Total surplus of the euro zone for the first nine months of the year more than doubled on the year to 109.6 billion euros, compared with 50.2 billion euro surplus in the same period of 2012. The Eurozone failed to continue its growth trend from the second quarter mainly due to France’ contraction. The southern Euro countries, are weakened by record high  unemployment, weak growth and harsh austerity measures. Therefore are not fair match to other neighbor economies with stronger footing.  Trade surplus is expected to widen further to 15.2 billion.
3. German Buba Monthly Report: Monday, 11:00. Deutsche Bundesbank November report revealed a positive projections for Germany. The bank members believe current momentum will continue and will gain a stronger foothold in the coming months. Germany’s gross domestic product increased 0.3% in the third quarter from the preceding quarter, driven exclusively by domestic demand, a trend that is likely to continue. However the central bank warned, that creating an investment-friendly climate in Germany depends on the incoming government after elections earlier this year.
4. Mario Draghi speaks: Monday, 14:00. ECB President Mario Draghi will speak at the European Parliament’s Committee on Economic and Monetary Affairs, in Brussels. Draghi may talk about his call on national governments to deliver economic reforms focusing on completing the banking union, implementing growth-friendly fiscal consolidation, and structural reforms in labor and product markets. His last appearance was calm, and it boosted the euro.
5. German ZEW Economic Sentiment: Tuesday, 10:00. German investor sentiment gained traction in November reaching 54.6, its highest level since October 2009, with a firm improvement in the Eurozone outlook.  However ZEW’s current conditions index fell marginally for the second consecutive month, down to 28.7 from a reading of 29.7 in the previous month. The gain in investor projections goes hand in hand with German stable growth. GDP increased 0.3% in the third quarter and the Bundesbank expected further growth in the final quarter as well.  Another improvement to 55.5 is expected this time.
6. Inflation data: Tuesday, 10:00.  According to the initial read for November, inflation moved up from the lows, reaching 0.9%. The ECB cut its main interest rate by 0.25% because of this low inflation rate of 0.7% in October. A 1.5% yearly rate is expected to continue during next year, before easing slightly to 1.4% in 2015. CPI is expected to climb 0.9% while core CPI is predicted to gain 1.0%.
7. German Ifo Business Climate: Wednesday, 9:00. German IFO Business sentiment, based on around 7,000 monthly survey responses, edged up to 109.3 points for November, beating forecasts of 107.9 and topping October’s reading of 107.4. German economic growth softened in the third quarter, posting a mild rise of 0.3% compared to 0.7% growth rate in the previous quarter. The main force leading the expansion was a rise in domestic demand. The Bundesbank optimistic projections for Germany’s future growth forecast further support this rise.  Another improvement to 109.7 is forecasted.
8. Current Account: Thursday, 9:00. The euro zone’s current account surplus shrank unexpectedly in September, reaching a seasonally adjusted surplus of EUR13.7 billion compared to an upwardly revised reading of EUR17.9 billion in August. Economists expected the euro-area current account surplus to widen to EUR18.3 billion in September. On a 12 month cumulated reading for the period ending in September 2013, surplus reached EUR196.5 billion, 2.1% of euro area GDP, compared with a surplus of EUR100 billion, 1.1% of euro area GDP, for the previous 12-month period. Current account surplus is expected to reach 14.2 billion this time.
9. German PPI: Friday, 7:00. On a monthly basis the German PPI edged down 0.2% in October, following  0.3% growth in September. Economists expected a small rise of 0.1%. On a yearly basis PPI declined 0.7% in October, after dropping 0.5% in September, slightly below expectations of -0.6%. No change is expected now.
10. GfK German Consumer Climate: Friday, 7:00. German consumer sentiment climbed to a six-year high of 7.4 points in December, following a 7.1 reading in the previous month. The increase shows that domestic demand is now the main force behind Germany’s economic growth, compensating for weaker exports this year. A small gain to 7.5 is anticipated.

* All times are GMT

EUR/USD Technical Analysis

Euro/dollar started the week climbing from 1.3675 and going all the way to the 1.38 line (mentioned last week). After two failed attempts to cross this line, it fell and lost some ground.

Technical lines from top to bottom:

1.4036 was a separator back in 2011, and awaits the pair if it breaks above 1.40. 1.3940 was a peak in September 2011, over two years ago, and is just before the round number of 1.40.

1.3832 is the 2013 peak so far. The failure of the pair to get close to this line for a second time might make it a top for a long time. 1.38 is a round number and also worked as a temporary cap during that period of time and also in October 2013.

1.3710 was the previous 2013 peak, and served as a clear separator. The pair needed a big trigger to break above this line, and when it lost it again, the fall was painful. 1.3675 capped the pair in December and also provided some support back in October.

1.3615 worked as resistance in December, as an upper bound for the range. It is followed by 1.3525, which was the lower bound during this period and also had the opposite role in early 2013.

1.3440 worked as a clear separator in early November 2013 and is a key line to the upside. The round number of 1.34 worked as resistance several times in 2013, and is strengthening now.

1.3320 worked as a double top in early September and it was crossed only with a Sunday gap. It remains a clear separator of ranges. It is followed by 1.3240, which capped the pair in April and also had a role in August. It worked as support in September.

1.3175 capped the pair during July 2013. 1.3100 is worked as temporary resistance in December 2012 and is becoming more important once again, after capping a recovery attempt in June and then in July and providing support in September.

Uptrend resistance, Lower high

From early November, the pair is trending higher, riding above an uptrend support line that currently provides support around 1.36. The downtrend black thick line emphasizes the lower high the pair reached: from 1.3830 in October to 1.38 in December.

I turn from neutral to bearish on EUR/USD

No news proved to be good news for the euro once again, but with a lower high on the charts, the worries about a strong euro and a sluggish economy,  we could see weakness in the pair.

And more importantly during this week, a decision on QE tapering could boost the dollar. This is supported by positive job numbers, no political hurdles and a separation of expectations between QE tapering and a rate hike. All culminate to a perfect setting for the move that could make the USD the big winner now and in 2014.

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Forex - Weekly outlook: December 16 - 20

The dollar hit its strongest level in five years against the yen on Friday and rose against the euro amid expectations the Federal Reserve could begin scaling back its monthly bond buying program as soon as this month.

Expectations for a small reduction in the pace of the Fed’s USD85 billion-a-month asset purchase program at its upcoming policy meeting were boosted after stronger-than-forecast U.S. retail sales data for November released on Thursday added to signs that the economic recovery is deepening.

An agreement on a two-year U.S. budget deal was also seen as removing an obstacle to the winding back of monetary stimulus. 

USD/JPY rose to 103.92, the highest level since October 2008 and was last down 0.15% to 103.19. 

The dollar pulled back from highs as investors locked in profits, while data showing that U.S. producer price inflation fell 0.1% in November sparked concerns over the sluggish inflation outlook.

The soft inflation data did little to alter expectations that the Fed will begin withdrawing stimulus in the next few months after the latest U.S. nonfarm payrolls report showed that the U.S. economy added more jobs than expected in November.

The yen remained under heavy pressure on the view that the Bank of Japan will have to increase the size of its asset-purchase program in the coming year in order to meet its target of 2% inflation by 2015.

EUR/USD fell to 1.3710, the weakest level since December 9 and was last down 0.09% to 1.3739. 

The euro also scaled five year peaks against the yen on Friday, withEUR/JPY rising to 142.83, the highest level since October 2008, before pulling back to 141.81, ending the session 0.27% lower. 

Meanwhile, Australia’s dollar ended the week close to three month lows against the U.S. dollar after the country’s central bank Governor Glenn Stevens said the bank wanted to see the Aussie’s exchange rate closer to 0.85 U.S. cents in order to support the economy.

AUD/USD hit lows of 0.8908, the weakest level since August 30, and was last up 0.33% to 0.8965. For the week, the pair dropped 1.33%.

In the week ahead, investors will be focusing on Wednesday’s outcome of the Fed’s monthly policy meeting, and a press conference with Chairman Ben Bernanke will be closely watched.

The euro zone is to release data on manufacturing and service sector activity, while the ZEW index of German economic sentiment will be keenly awaited. In addition the BoJ is to hold what will be its final policy meeting of the year.

Ahead of the coming week, Investing.com has compiled a list of these and other significant events likely to affect the markets.

Monday, December 16

Japan is to release data on manufacturing and service sector activity. Meanwhile, China is to produce preliminary data on the closely watched HSBC manufacturing index.

The euro zone is to publish data on manufacturing and service sector activity, while Germany and France are to publish individual reports. Germany’s central bank is to publish its monthly report.

The U.K. is to release private sector data on industrial order expectations.
Canada is to publish a report on foreign securities purchases.

The U.S. is to release reports on industrial production, manufacturing activity in the New York region and the balance of foreign and domestic investment in U.S. securities.

Tuesday, December 17

The Reserve Bank of Australia is to publish the minutes of its latest policy meeting, which contain valuable insights into economic conditions from the bank’s perspective. The nation is also to publish a report on an index of leading economic indicators as well as a report on new vehicle sales.
The U.K. is to release data on consumer price inflation, which accounts for the majority of overall inflation.

The ZEW Institute is to release its closely watched report on German economic sentiment, a leading indicator of economic health. The euro zone is to publish data on consumer inflation.

Canada is to produce data on manufacturing sales, a leading indicator of economic health.

The U.S. is to release data on consumer inflation and the current account.

Wednesday, December 18

Japan is to release data on the trade balance, the difference in value between imports and exports.

New Zealand is to produce private sector data on business confidence, a leading indicator of economic health.

The Ifo Institute is to publish a report on German business climate, a leading indicator of economic health.

The Bank of England is to publish the minutes of its most recent policy setting meeting. The U.K. is to release data on the change in the number of people employed and the unemployment rate.

The ZEW Institute is to publish a report on economic expectations in Switzerland, a leading indicator of economic health.

Canada is to produce data on wholesale sales, a leading indicator of consumer spending.

The U.S. is to release data on building permits, a leading indicator of future construction activity, and housing starts.

The Federal Reserve is to announce its federal funds rate and publish its rate statement, which outlines economic conditions and the factors affecting the monetary policy decision. The U.S. central bank is also to publish its economic projections for the next two years. The rate announcement is to be followed by a press conference with Chairman Ben Bernanke.

Later Wednesday, New Zealand is to release data on third quarter gross domestic product, the broadest indicator of economic activity and the leading indicator of economic growth.

Thursday, December 19

The euro zone is to release data on the current account.

The U.K. is to produce report on retail sales, the government measure of consumer spending, which accounts for the majority of overall economic activity.

The U.S. is to publish data on existing home sales, manufacturing activity in the Philadelphia region and initial jobless claims.

Friday, December 20

The BoJ is to announce its benchmark interest rate and publish its monetary policy statement, which outlines economic conditions and the factors affecting the bank’s decision. The announcement is to be followed by a press conference.

Germany is to release data on producer price inflation, as well as private sector data on consumer climate.

The U.K. is to publish revised data on third quarter GDP and reports on public sector net borrowing and the current account.

Canada is to release data on consumer inflation and retail sales.
The U.S. is to round up the week with revised data on third quarter GDP.

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